Legal eagle

The Facts

A metal trader bought parcels of nickel from a Chinese seller as broking intermediary for an ultimate buyer, pursuant to spot purchase and repurchase ("repo") contracts. The nickel was stored at warehouses, subject to transferable warehouse receipts. The trader provided to the buyer receipts which appeared to have been issued by the warehouse keeper to a third party, but which in fact were counterfeit. When this was established, the buyer closed out its futures position and claimed USD32 million from the trader, who in turn claimed against the warehouse keeper in contract and negligence. 

The Judgment

The buyer succeeded entirely against the trader on the basic point that the latter had breached its contract by failing to pass title in the goods. The trader unsuccessfully argued that it had contracted only to deliver against warehouse receipts which had been presented to it - which is what it did - even if these were counterfeit. This was held by the court to be contrary to the natural meaning of the contracts, as well as uncommercial and unprofessional.

The trader attempted to reduce its liability by alleging common mistake on the basis that both parties were fundamentally mistaken about the authenticity of the receipts. This would have entitled the buyer only to the purchase price of the nickel, as if the contract had not taken place, and not to be returned to the position in which it would have been if there had been no breach, by additionally claiming damages for the close out of the futures contracts. This also failed because the buyer's careful drafting of the contract established that the trader bore the risk of the fraudulent receipts (Common mistake only works in English law where a contract contains no express or implied attribution of risk for the mistake).

In its claim against the warehouse keeper, the trader argued that there was a contract between the parties for the warehouse keeper to deliver up metal subject to warehouse receipts.

The court rejected this argument because the trader did not hold genuine warehouse receipts. The Court held additionally that even if the warehouse receipts were genuine, this argument would have failed because (i) the warehouse receipts were not documents of title; and (ii) there was no contractual relationship between the holder of a warehouse receipt and the warehouse keeper until the holder endorsed the original warehouse receipt and presented it to the warehouse keeper for cancellation to the order of the holder (which, as the judgment noted, the trader did not do despite having been advised by the warehouse keeper to do so).

The absence of a contract defeated the trader's attempt to establish an estoppel, because it is now very well established that estoppel can only be used as a shield, not as a sword. in addition, estoppel is personal and could not be a basis on which to order delivery of goods belonging to a third party.

The court noted that prior to the trial, all parties had agreed that the counterfeit warehouse receipts were the result of "sophisticated and skillfully executed forgeries". Notwithstanding that, the court found that the warehouse keeper did not uncover the skillfully - forged receipts when the trader initially submitted the counterfeit receipts for authentication, thus it failed in its duty to the trader to exercise reasonable skill and care in this aspect.

The warehouse keeper was therefore liable to this extent in negligence. However, damages were reduced by 25% due to the trader's contributory negligence in its dealings with the Chinese seller.

The trader attempted to break the limit of liability of €100,000 per receipt in the warehouse keeper's standard business terms and conditions for two reasons: firstly, the court had found that there was no contract between the warehouse and the trader and secondly an assertion that the limit was repugnant to UCTA (unlawful contract terms) under applicable Singapore law. The attempt failed on four counts:

  • a reasonable person in the trader's position would have understood that the terms and conditions applied to extra-contractual services such as the authentication;
  • the limit was not onerous or unusual;
  • the trader had had notice of the limit over ten years course of dealing - reference to the limit and conditions was contained in every email.
  • a court should be very reluctant to "disrupt the equilibrium" by interfering with the level of responsibility which the warehouse keeper had assumed.

The court noted also that the trader was better placed than a warehouse keeper to evaluate the commercial implications of the transaction and conduct reasonable due diligence.


This judgment covers a lot of ground and is therefore necessarily rather complex.

The judgment is relevant, not only to the warehousing industry, but also to any sector where limits of liability are applied, either by standard trading conditions or by industry terms, such as national forwarding associations. It highlights the importance of careful drafting in order to communicate terms and conditions to customers and suppliers and to ensure that they are sufficiently wide to cover extra-contractual services where necessary and appropriate.

[2019] EWHC 2549 (Comm)

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Peregrine Storrs-Fox
Risk Management Director, TT Club

Staff Author

TT Club